Australian Government Surrenders on RSPT

"Miners win RSPT battle; government looks to minimize political damage."

Australian miners win the battle over resources tax as the federal government looks to minimize political damage. After months of vocal objection, the Australian mining industry has secured a major back down from the federal government on its proposed resources super profits tax (RSPT), which has been greatly watered down and given a new name in the process. The new minerals resources rent tax (MRRT) is a 30% tax solely on coal and iron ore producers with profits exceeding $50m. All other commodities producers will remain under existing tax arrangements. This effectively narrows the number of companies affected by the tax from around 2,500 to 320.

Miners also managed to negotiate an increase in the uplift rate to the long-term treasury bond rate (currently at around 5.7%), meaning the tax is triggered at closer to 13% as opposed to 6% under the original proposal.

And the industry got its way, too, with regard to the thorny issue of retrospective pay, and now has the option of choosing between book and market value when calculating tax responsibilities. And as a final sweetener, miners will be able to pocket 25% of their profits as an extraction allowance. Adding everything together, the miners have negotiated an effective tax rate of 22.5%.

Many small- and medium-sized miners have, however, expressed some dissatisfaction at the outcome that was essentially brokered by resources giants BHP, Rio Tinto and Xstrata. They hoped the new tax would include a flow-through share scheme that would enable the transfer of tax deductions of individual small exploration companies to individual investors, which would then be able to claim an income tax deduction. They were disappointed.